USD/CAD: Highlight before big event this week

After raising interest rates two meetings in a row and providing very little detail after the last hike, investors were looking for a third round of tightening. However at the end of September, BoC Governor Poloz killed expectations for another hike before year end by saying there is “no predetermined” path for Canadian rates and they won’t be mechanical and will proceed cautiously going forward.

With that in mind, it may be difficult for Poloz and Wilkins to avoid dropping hints about future policy when they speak after the rate decisions. If the BoC maintains a firmly neutral tone, confirming that rates won’t be increased again before the end of the year and provide very little insight into future policy actions, USD/CAD will soar.

However if they wrap a comment about having no predetermined path for rates with a positive outlook for the economy, we could see USD/CAD drop.

We are expecting the BoC to keep policy rates steady, but there remains a trace of doubt in the market’s mind due to past surprises. Since September’s move, we’ve heard a markedly more cautious tone from policymakers. While the Bank of Canada is clearly data dependent, we anticipate that caution will be very prevalent in the policy statement,

The BOC has kept rates unchanged at 1.0%. That is as expected.
BOC pledges caution on future rate increases
Sees economy Running close potential over next two years
Projects output gap at zero in the third quarter of 2017
Less monetary stimulus will likely be required over time
Housing spending to slow on policy changes, higher rates
Lifts 2017, 2018 GDP forecasts to 3.1% and 2.1% from 2.8% and 2%